NBS explains housing prices not included in CPI

08:55, April 09, 2010

Although house purchases are a kind of consumption, officials from the National Bureau of Statistics (NBS) said Wednesday there are still many factors why it should not be included in the consumer price index (CPI), a main measure of inflation. Some economists had called for housing prices to be part of the CPI.

According to the officials, there are three reasons for not including housing prices in the CPI. One is that according to the international prevailing standard, housing belongs to the category of fixed capital, and should not be included in CPI.

Secondly, the cost for buying a home is high and it can be used for years, so the time between the purchase and consumption of the house has no correlation. Also, CPI is a reflection of the prices changes of commodities calculated monthly.

Thirdly, it is hard to find a price index that can cover all commodities.

But the weight of these categories is different. For instance, food accounts for 32 percent, while living costs make up 14.69 percent. The influence of food on the CPI has changed in recent years. In 2004, food's influence on the CPI was 76 percent, but increased to 82 percent in 2007 and 86 percent in 2008.

NBS officials previously disclosed that the weight of residential consumption may increase in the future to more fully reflect people's true lives to coincide with rising housing prices.

Yi Xianrong, a researcher with the Chinese Academy of Social Sciences (CASS), said that the reason for the gap between the figures and what people think the CPI number should be, as many feel the CPI calculation does not reflect the true situation.

For instance, in developed countries, 80 percent of transactions in the property market are second-hand homes, and these should be considered as investment and listed in the CPI, while in China, 80 percent of the deals on the market are new homes and people buy them for their own use, and these cannot be reflected in the CPI, he said.

Since the CPI figure is the average one, the increasing wealth gap in the country also resulted in the gap between the figures and what people think the CPI should be, Zhang Jiao, a member of the National Committee of Chinese People's Political Consultative Conference (CPPCC) said.

Officials from the NBS said that people are more sensitive about price rises on things like eggs and pork, while ignoring the fact that prices of other goods are declining, like the mobile phones and TVs.